The central bank’s record cash injection of 560 billion yuan into the banking system on Wednesday came through “reverse repurchase agreements,” or buying short-term bonds from some commercial lenders so banks have more cash on hand. Sales of the bonds are called “repurchase agreements” and both measures comprise the central bank’s “open market operations.”
Records from financial database Wind showed the second-highest level of one-day net injections dates back to January 2016, when China’s economy was also experiencing difficulties.
At that time, the central bank gave no explanation on its website for why it was putting so much money into the system. But on Wednesday, it said the move was done “in order to maintain reasonable and sufficient liquidity in the banking system.”
“We do believe the PBoC is stepping up monetary easing, but we should not confuse seasonal (open market operation) moves with long-term liquidity injections,” Ting Lu, Nomura’s chief China economist, said in an email. “This reflects an increasing caution of the PBoC to stabilize interbank rates and bond yields to offset potential liquidity shocks.”
Chinese Premier Li Keqiang announced in January that the government is also cutting its reserve requirement ratio — the amount of cash that banks have to hold — later this month. There were four such cuts in 2018.
— CNBC’s Yen Nee Lee contributed to this report.